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Short-sellers have ramped up their bets against undertaker Dignity after the competition watchdog began an inquiry into the funeral industry, which is in the midst of a price war.

Hedge funds Lombard Odier, Blackrock and Merian have all increased their short positions against the funeral provider in the last three weeks.

At least 2.9pc of Dignity’s shares are now on loan, up from zero disclosed shorts in September.

The Competition and Markets ­Authority launched a full-scale investigation in November after finding that funeral prices had risen at more than three times the rate of inflation over the past 10 years.

Dignity, Britain’s only listed undertaker, has been in turnaround mode since warnings...